A standard question asked when a Public/Products Liability policy is placed is whether the insured engaged labour hire personnel and/or contractors or sub-contractors. A situation that comes up regularly is with what I will call internal labour hire. This arises where the insured has two companies. One company carries on the business. The second company engages all of the employees. The second company takes out worker’s compensation insurance.

What we see is an employee of the second company injured while working in the business of the first company. The worker’s compensation insurer pays the claim and seeks recovery from the first company. 

The first company then seeks cover under their Public Liability policy. The effect of these internal labour hire arrangements is that they effectively turn the Public Liability insurer into a Worker’s Compensation insurer. 

Liability insurers do not want to be in that position and their response to these kinds of arrangements is usually to either decline the risk, accept the risk with an exclusion or put on a high excess (in one recent claim, the excess was $100,000). 

Internal labour hire arrangements seem to be recommended by accountants. From the perspective of an accountant, they may be prudent arrangements. 

However, from an insurance perspective, they are potentially catastrophic.

If you have questions, please contact your experienced account broker at theteam@wsib.com.au or phone 02 9587 3500.

Source:
Steadfast